How Steve Cohen moves stock

By Felix Salmon

November 26, 2012

Eric Hunsader, at Nanex, has managed to put together some fantastic charts of what exactly happened in Elan, the stock at the center of the latest big insider-trading case. "
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Eric Hunsader, at Nanex, has managed to put together some fantastic charts of what exactly happened in Elan, the stock at the center of the latest big insider-trading case.

First, here’s the big picture:

The red arrow shows the period “throughout 2007 and up to July 2008″ during which SAC “established a substantial long position” in Elan. The blue arrow points to the frantic week during which SAC sold off more than its entire holding, ending up with a significant short position, just before the stock plunged.

When Elan opened for trade on Monday July 21, 2008, it was at a multi-year high of more than $35 per share, and SAC’s long position was massively in the money — after all, they had been buying since it was less than $15. And then SAC started selling, aggressively.

Over a four-day period, SAC sold its entire position of 10.5 million shares between Monday and Thursday, at a super-high average price of $34.21 per share. The head trader, who said that he sold the stock “quietly and efficiently through algos and darkpools”, continued to sell. By the end of the trading session on the 29th, he had sold more than 15 million shares for more than $500 million. The complaint notes that the SAC trading “constituted over 20% of the reported trading volume in the seven days prior to the July 29 Announcement.”

What does that kind of massively one-sided selling do to a stock price? This:

Basically, Elan moved sideways for most of the time that the stock was being sold. Day 1 was great, Day 2 was decent until the end of the day, Day 3 started off well but then deteriorated, Day 4 was horrible, Day 5 was much better, Day 6 had a good morning and a gruesome afternoon, and Day 7 was pretty good.

And by the end, in the wake of $500 million of concerted selling in a pretty illiquid stock, the share price was about $33.50 — pretty much exactly where it was on the Friday before the selling started.

Eric’s detailed day-by-day charts are well worth looking at, but for me there are two big-picture lessons here. The first is that SAC is an amazingly good trading shop; we probably already knew that. And the second is that any time you see a market reporter blaming “selling” for the fact that a stock went down, you can take that with a pinch of salt. Because the lesson here is that an absolutely enormous amount of very real selling can have a surprisingly small effect on a stock’s price.